Irish vote will test the winds of EU's austerity program

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If Spain's banks were not melting down and Greece were not on the verge of running out of cash -- and out of the euro zone -- Thursday's Irish referendum might be more headline-worthy. No one outside of Ireland much cares about the referendum and there's a good reason for that -- it won't change the euro zone's direction, assuming it has a direction other than down, down, down.

On Thursday, Irish voters go to the polls to approve or reject the German-inspired fiscal compact that insists on greater oversight of public finances and imposes fines on European Union countries (save Britain, which is not part of this deal) that blow set budget deficit and national debt targets. The purpose of the compact is to prevent another debt crisis, assuming the EU gets through this one.

Ireland is the only EU member state that is putting the fiscal compact to a popular vote. Under Irish law, any transfer of sovereignty requires a referendum.

Early polls suggest the vote will go in favour of endorsing the fiscal pact, which will please Ireland's ruling Fine Gael-Labour coalition and German chancellor Angela Merkel, the champion of fiscal rectitude and austerity. But it's way too early to declare victory for the "Yes" side. About one-third of voters are still undecided and Ireland has a history of revolting behaviour when it comes to matters of European integration and power transfer to Brussels. Ireland rejected the EU's Nice and Lisbon treaties, had a good think about them and then, after seeking some clarifications, finally endorsed them.

So why doesn't the Irish referendum matter much? Because the fiscal compact is going ahead even if the Irish deliver a "No" vote. The compact will not be taken down by one of the EU's smallest countries.

Still, a "No" vote would matter a lot to Ireland itself. If the vote goes that way, Dublin would be denied access to the European Stability Mechanism, the new permanent bailout fund that is to come to life later this year. Ireland was the second euro zone country to get bailed out, in 2010. Since it is still shut out of the debt markets, it may need to tap into the ESM at some point, depending on the pace of is economic recovery and health of its clapped-out banks.

All this is not to say that a resounding "No" vote would go unnoticed beyond the charmed island. Consider it a sentiment indicator. Rejection of the fiscal compact could be interpreted as rejection of the harsh austerity programs demanded by the EU (read: Germany), the International Monetary Fund and the European Central Bank -- the so-called troika.

Anti-austerity sentiment is sweeping southern Europe. In the Greek elections early this month, some 70 per cent of the vote went in favour of anti-austerity parties, which blame the deep spending cuts and tax hikes for killing the economy. In Spain, the new centre-right government has been pleading for austerity-lite for fear that harsh measures will send the jobless rate even higher (Spain's youth unemployment rate is more than 50 per cent). Sinn Fein, the main Irish opposition party, has used its anti-austerity, pro-sovereignty message to gain popularity. It is campaigning for a "No" vote on Thursday.

So does the referendum matter? If a "No" vote wins they day, it will be further evidence that austerity measures were the wrong fix for Europe and have to be replaced with something else, and fast.